Blockchain technology has influenced all typed of industries: real estate, postal services, healthcare etc. It turned the financial space into a safer arena. With the inclusion of blockchain technology and the emergence of cryptocurrencies, people can now see the financial world’s new face. Decentralized finance or DeFi is one such revolutionary step towards making this financial sector even more secure and seamless. It is basically a consortium of decentralized apps and services that address different concerns in the blockchain world and comes up with new concepts, like yield farming.
Yet another decentralized finance project has appeared and it holds the potential to outshine other initiatives. We are talking about the brand-new governance token project. Governance tokens provide the power to crypto holders to influence the workings of decentralized projects, including the product feature, roadmap, staffing, etc.
Why Governance Tokens?
Governance tokens have become the most popular decentralized finance product that has created a buzz among the crypto holders. Unlike the utility tokens, DeFi governance tokens have pitched themselves to be based on fundamental analysis. It is evident that all the DeFi projects have well-defined revenue even at their protocol level in the form of interest rates and fees.
To better understand the influence of governance tokens, let us compare with stock analogies. In stock trading, the holders are entitled to vote on the company’s board and a portion of the distributed dividends. With this, the stockholders have the power to influence the developments in the corporate surroundings and profit from success. The workings of crypto governance tokens are quite straightforward and can be compared with dividends.
MKR or Maker uses the burn and buyback method in order to get the value of MKR governance tokens. The interest paid by the borrowers is utilized to buy the MKR token via auctions and later burned. Through this mechanism, a realistic price growth dynamic increases the demand and reduces the simplicity of MKR. While the mechanism is somewhat closer to the stock buybacks, it creates value for the holders, just like dividends.
Top DeFi Governance Token Projects That Are Ruling
Believe it not, the top governance token projects have shot up to $4.3 billion USD in the Ethereum ecosystem. The reason governance cryptocurrency is gradually becoming a big hit among the crypto holders is because of the authority it gives to them in the DeFi platforms. Though governance holds a strong position in the ecosystem, many people still don’t understand it. It is quite evident that the Ethereum ecosystem is reigning and rising.
Here are the top governance token projects that have made their way into the Ethereum ecosystem.
Compound governance token has the largest market cap of $1.68 billion in the market. With the current price standing at $168, the total supply is running at 10,000,000, making it the largest in the market. The tokens brought in the Compound community authorizes the holders to vote on the changes that have to be made to Compound. Only quite a few people know that MKR served as the base for other decentralized governance projects and inspired them. It worked as the bar to measure the other tokens against it. Being a popular DeFi for its decentralized borrowing and lending, COMP governance token got thrust in the market.
Yet another popular governance token is MKR, known for its DeFi borrowing and stablecoin project. The market cap of MKR governance tokens is $447.4 million, with the current price at $444.93 and a total supply of 1,0005,577. The MKR tokens can be used to vote on changes to be made in Maker protocol, whether it is the addition of collateral types of delegation functionality. MKR is significantly deflationary compared to its competitors in the market.
The native asset of Synthetix, SNX, is a decentralized platform that issues Ethereum based synthetic assets. It has a market cap of $669.6 million, with the current price at $3.45 and a total supply of 194,006,803. In 2019, Synthetix transformed into governance tokens. However, SNX already has capabilities beyond the governance token aspect. With this, holders can lock their SNX and create Synths. Though SNX is not a conventional governance token, it is gradually moving towards becoming a different model altogether.
The governance and collateral token of Aave, LEND, is a decentralized lending and borrowing protocol based on Ethereum. The market cap stands at $385.5 million, with a low price of $0.30 and a supply of 1,299,999,942. It is quite similar to Compound with regards to its offering to the users. Aave provides features like credit delegation and flash loans. LEND provides the voting authority to the users and earns fees generated via Aave protocol. It also acts as a defense against mass liquidation cases when staked.
It is the token of Kyber Network, which is an on-chain liquidity protocol that allows the users to engage in decentralized trades. Katalyst upgrade and KyberDAO were released in 2020 that enable users to stake KNC in return for voting rights and rewards, hereby governing the Kyber Network. It has a $333.8 million market cap, with the current price at $1.59 and a supply of 210,552,294. It is a widely popular decentralized exchange on the Ethereum ecosystem that gave it a superior hold.
The Bottom Line
DeFi projects have always brought innovation in the ecosystem, and yet again, with crypto governance tokens, it has created a wave of advancements. It allows the holders to have a say and influence the decisions made on DeFi platforms regarding any project. It is also stated that the rise of the above-mentioned governance tokens will also pave the way for protocol politicians who can approach the new politics at the DeFi platforms. This is said to be the beginning of a series of changes that are yet to come in the crypto ecosystem. However, it can be firmly asserted that governance token possesses the potential to shape the political arena of the DeFi sector.
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